Washington Trust Reports Second Quarter 2023 Earnings

WESTERLY, R.I., July 24, 2023 /PRNewswire/ -- Washington Trust Bancorp, Inc. (Nasdaq: WASH), parent company of The Washington Trust Company, today announced second quarter 2023 net income of $11.3 million, or $0.66 per diluted share, compared to net income of $12.8 million, or $0.74 per diluted share, for the first quarter of 2023.

"Washington Trust's second quarter results reflect the strength and stability of our diversified business model and disciplined approach to capital, credit, and liquidity planning," stated Edward O. Handy III, Washington Trust Chairman and Chief Executive Officer. "We've had consistent deposit growth, our asset quality remains strong, and we surpassed $7 billion in total assets for the first time. During our 223-year history, Washington Trust has weathered many storms and we remain committed to helping our customers through these challenging economic times."

Selected financial highlights for the second quarter include:

• Returns on average equity and average assets for the second quarter were 9.67% and 0.65%, respectively, compared to 11.27% and 0.77%, respectively, for the preceding quarter.
• Net interest income totaled $33.5 million in the second quarter, down by $3.7 million, or 10%, from the preceding quarter, reflecting the challenging interest rate environment.
• Asset and credit quality metrics continue to remain strong. In the second quarter, a provision for credit losses of $700 thousand was recognized, down by $100 thousand from the provision recognized in the preceding quarter.
• Noninterest income totaled $14.3 million in the second quarter, up by $1.0 million, or 8%, from the preceding quarter, reflecting increases in both wealth management and mortgage banking revenues.
• Total loans amounted to an all-time high of $5.4 billion, up by $153 million, or 3%, from the end of the preceding quarter. Total loans were up by $901 million, or 20%, from a year ago.
• In-market deposits (total deposits less wholesale brokered deposits) amounted to $4.7 billion, up by $53 million, or 1%, from March 31, 2023. In-market deposits were up by $165 million, or 4%, from a year ago.

Net Interest Income

Net interest income was $33.5 million for the second quarter of 2023, down by $3.7 million, or 10%, from the first quarter of 2023. The net interest margin was 2.03% for the second quarter, down by 30 basis points from the preceding quarter. These declines reflected continued increases in funding costs, which outpaced increases in asset yields. Linked quarter changes included:

• Average interest-earning assets increased by $173 million, including an increase of $156 million in average loans. The yield on interest-earning assets for the second quarter was 4.53%, up by 23 basis points from the preceding quarter.
• Average interest-bearing liabilities increased by $271 million, reflecting increases in average wholesale funding balances of $143 million and average in-market deposits of $128 million. The cost of interest-bearing liabilities for the second quarter of 2023 was 3.02%, up by 60 basis points from the preceding quarter.

Noninterest Income

Noninterest income totaled $14.3 million for the second quarter of 2023, up by $1.0 million, or 8%, from the first quarter of 2023. Linked quarter changes included:

• Wealth management revenues amounted to $9.0 million in the second quarter of 2023, up by $385 thousand, or 4%, on a linked quarter basis. This included an increase in transaction-based revenues of $252 thousand, concentrated in tax servicing and estate fee income, as well as an increase in asset-based revenues of $133 thousand. The change in asset-based revenues reflected an increase in the average balance of wealth management assets under administration ("AUA"), which was up by approximately $103 million, or 2%, from the preceding quarter.
  
  The end of period AUA balance at June 30, 2023 amounted to $6.4 billion, up by $187 million, or 3%, from March 31, 2023. This increase reflected net investment appreciation of $260 million, partially offset by net client asset outflows of $73 million.
• Mortgage banking revenues totaled $1.8 million for the second quarter of 2023, up by $508 thousand, or 41%, from the first quarter of 2023, reflecting higher realized gains on loan sales, as well as changes in the fair value of mortgage loans held for sale and forward loan commitments. Realized gains on sales of loans increased by $251 thousand, or 44%, from the preceding quarter, due to a higher volume of loans sold to the secondary market, which was partially offset by a lower sales yield. Mortgage loans sold to the secondary market amounted to $64.6 million in the second quarter of 2023, up by $35.2 million, or 120%, from the preceding quarter.
• Loan related derivative income in the second quarter of 2023 was up by $298 thousand from the preceding quarter, largely reflecting an increase in commercial borrower interest rate derivative transactions.
• Income from bank-owned life insurance totaled $879 thousand in the second quarter of 2023, down by $286 thousand, or 25%, from the preceding quarter. In the second quarter, $182 thousand of income associated with life insurance proceeds was recognized, compared to $476 thousand in the preceding quarter.

Noninterest Expense

Noninterest expense totaled $33.0 million for the second quarter of 2023, down by $548 thousand, or 2%, from the first quarter of 2023. Linked quarter changes included:

• Salaries and employee benefits expense, the largest component of noninterest expense, amounted to $20.6 million, down by $1.2 million, or 5%, from the preceding quarter, reflecting decreases in performance-based compensation accruals, partially offset by volume-related increases in mortgage originator compensation expense.
• FDIC deposit insurance costs were up by $499 thousand, or 57%, from the first quarter of 2023, largely reflecting growth in assets.

Income Tax

Income tax expense totaled $2.9 million for the second quarter of 2023, down by $447 thousand from the preceding quarter. The effective tax rate for the second quarter of 2023 was 20.2%, compared to 20.5% in the preceding quarter. Based on current federal and applicable state income tax statutes, the Corporation currently expects its full-year 2023 effective tax rate to be approximately 20.8%.

Investment Securities

The securities portfolio totaled $1.0 billion at June 30, 2023, down by $32 million, or 3%, from March 31, 2023, reflecting routine pay-downs and a decrease of $13 million in the fair value of available for sale debt securities due to changes in market interest rates. The securities portfolio represented 15% of total assets at both June 30, 2023 and March 31, 2023.

Loans

Total loans amounted to $5.4 billion at June 30, 2023, up by $153 million, or 3%, from the end of the preceding quarter. Linked quarter changes included:

• Commercial loans increased by $33 million, or 1%, from March 31, 2023, reflecting originations and advances of approximately $102 million, partially offset by principal payments of approximately $69 million.
• Residential real estate loans increased by $107 million, or 4%, from March 31, 2023. In the second quarter of 2023, residential real estate loans originated for portfolio amounted to $149 million, up by $39 million, or 35%, from the preceding quarter.
• The consumer loan portfolio increased by $14 million, or 4%, from March 31, 2023, reflecting growth in home equity lines and loans.

Deposits and Borrowings

Total deposits, which include wholesale brokered deposits, amounted to $5.3 billion at June 30, 2023, up by $46 million, or 1%, from the end of the preceding quarter. Uninsured deposits, after exclusions (as detailed in the financial tables below) amounted to $937 million, or 18% of total deposits, at June 30, 2023.

In-market deposits, which exclude wholesale brokered deposits, amounted to $4.7 billion at June 30, 2023, up by $53 million, or 1%, from March 31, 2023. In the second quarter of 2023, in-market deposits continued to shift from relatively lower cost products to higher cost products due to higher market interest rates. As of June 30, 2023, in-market deposits were approximately 59% retail and 41% commercial. The average size of our in-market deposit accounts was approximately $37 thousand at June 30, 2023.

Wholesale funding was utilized in the second quarter to fund balance sheet growth. FHLB advances totaled $1 billion at June 30, 2023, up by $115 million, or 12%, from March 31, 2023. Wholesale brokered deposits amounted to $601 million and were down by $7 million, or 1%, from March 31, 2023. As of June 30, 2023, Washington Trust has contingent liquidity of $1.7 billion, consisting of unencumbered securities and unused collateralized borrowing capacity.

Asset Quality

Nonaccrual loans were $10.4 million, or 0.19% of total loans, at June 30, 2023, compared to $14.0 million, or 0.27% of total loans, at March 31, 2023. Past due loans were $6.3 million, or 0.12% of total loans, at June 30, 2023, compared to $8.0 million, or 0.15% of total loans, at March 31, 2023.

The allowance for credit losses ("ACL") on loans amounted to $39.3 million, or 0.73% of total loans, at June 30, 2023, compared to $38.8 million, or 0.74% of total loans, at March 31, 2023. The ACL on unfunded commitments, included in other liabilities on the Consolidated Balance Sheets, was $2.4 million at June 30, 2023, compared to $2.3 million at March 31, 2023.

The provision for credit losses totaled $700 thousand in the second quarter of 2023, down by $100 thousand from the preceding quarter. Actual losses remain low, as asset and credit quality metrics remain strong. In the second quarter of 2023, net charge-offs of $37 thousand were recognized, compared to $47 thousand in the preceding quarter.

Capital and Dividends

Total shareholders' equity was $459.2 million at June 30, 2023, down by $5.8 million, or 1%, from March 31, 2023. This decrease included $9.5 million in dividend declarations. The accumulated other comprehensive income ("AOCI") component of shareholders' equity decreased by $7.1 million in the second quarter, largely reflecting a decrease in the fair value of available for sale debt securities due to changes in market interest rates. These decreases were partially offset by net income of $11.3 million in the second quarter.

The Board of Directors declared a quarterly dividend of 56 cents per share for the quarter ended June 30, 2023. The dividend was paid on July 13, 2023 to shareholders of record on July 3, 2023.

Capital levels at June 30, 2023 exceeded the regulatory minimum levels to be considered well capitalized, with a total risk-based capital ratio of 11.81% at June 30, 2023, compared to 12.01% at March 31, 2023. Book value per share was $26.98 at June 30, 2023, compared to $27.37 at March 31, 2023.

Conference Call

Washington Trust will host a conference call to discuss its second quarter results, business highlights and outlook on Tuesday, July 25, 2023 at 8:30 a.m. (Eastern Time). Individuals may dial in to the call at 1-833-470-1428 and enter Access Code 429492. An audio replay of the call will be available, shortly after the conclusion of the call, by dialing 1-866-813-9403 and entering the Replay Access Code 580583. The audio replay will be available through August 8, 2023. Also, a webcast of the call will be posted in the Investor Relations section of Washington Trust's website, https://ir.washtrust.com, and will be available through September 30, 2023.

Background

Washington Trust Bancorp, Inc. is the parent of The Washington Trust Company. Founded in 1800, Washington Trust is the oldest community bank in the nation, the largest state-chartered bank headquartered in Rhode Island and one of the Northeast's premier financial services companies. Washington Trust offers a full range of financial services, including commercial banking, mortgage banking, personal banking and wealth management and trust services through its offices located in Rhode Island, Connecticut and Massachusetts. The Corporation's common stock trades on NASDAQ under the symbol WASH. Investor information is available on the Corporation's website at https://ir.washtrust.com.

Forward-Looking Statements

This press release contains statements that are "forward-looking statements." We may also make forward-looking statements in other documents we file with the U.S. Securities and Exchange Commission ("SEC"), in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following:

• changes in general business and economic conditions on a national basis and in the local markets in which we operate;
• changes in customer behavior due to political, business and economic conditions, including inflation and concerns about liquidity;
• interest rate changes or volatility, as well as changes in the balance and mix of loans and deposits;
• changes in loan demand and collectability;
• the possibility that future credit losses are higher than currently expected due to changes in economic assumptions or adverse economic developments;
• ongoing volatility in national and international financial markets;
• reductions in the market value or outflows of wealth management AUA;
• decreases in the value of securities and other assets;
• increases in defaults and charge-off rates;
• changes in the size and nature of our competition;
• changes in legislation or regulation and accounting principles, policies and guidelines;
• operational risks including, but not limited to, changes in information technology, cybersecurity incidents, fraud, natural disasters, war, terrorism, civil unrest and future pandemics;
• regulatory, litigation and reputational risks; and
• changes in the assumptions used in making such forward-looking statements.

In addition, the factors described under "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the SEC, may result in these differences. You should carefully review all of these factors and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Supplemental Information - Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. Washington Trust's management believes that the supplemental non-GAAP information, which consists of measurements and ratios based on tangible equity and tangible assets, is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.